Recast or refinance your mortgage: Which is right for you

When it comes to home finance, your monthly mortgage payment probably tops the list of important factors. For those who have some equity stored up in their home, it may even be tempting to refinance your mortgage to get a better rate. However, there is another option for the homeowner who simply wants to get their mortgage payment paid off.

Here are three key differences between recasting mortgage payments versus traditional refinancing:

Length of loan term

When you refinance your monthly payments, you’re essentially entering into a new loan agreement with a mortgage lender. This can directly impact the length of your mortgage, drawing out the loan repayment term over an agreed upon length of time. When you recast your mortgage, however, you aren’t extending your mortgage payment.

Recasting your monthly mortgage payment simply means you keep your current loan repayment date. You only lower the payments for the life of your current mortgage.

Monthly payments

While decreasing your monthly payments seems great, there is one crucial point to recasting: you must repay a lump sum of your loan balance to qualify for mortgage recasting. Once you pay that lump sum, your monthly payments decrease based on the remaining principal of the loan.

With refinancing, you can decrease your monthly payments by taking out a new loan for the remaining balance. This is often done once you’ve stored some equity in your home by making your original mortgage payments. You may even receive new interest rates, furthering your lower monthly payment.

Interest rates

Interest rates are another key factor to consider when recasting your mortgage. For example, if you’ve received an excellent interest rate with your original mortgage, that interest rate will not change, even if your mortgage payments do. However, if your interest rate is higher than desired, you’ll still need to pay the same interest rate.

Since refinancing is typically a different loan, your lender may offer a different interest rate to be paid with your new mortgage loan. Your new monthly obligation will reflect that interest rate as you begin to pay your new loan.

Determining whether recasting your mortgage or refinancing it is the best option depends on your financial goals and obligations. However, if you’re interested in making your monthly payments more manageable, try talking to your loan provider. They may be able to offer a few places to begin your new repayment journey.